Bear Mkt has begun.My FIRE plans solidified.

[HI Bill]

That's why I'm 100% convinced this market is broken. We have never seen anything quite like it, and once we're back to Dow 26K (if we ever get there again in my lifetime), I'm selling every last share of stock and funds I own and going 100% cash the rest of my natural life. I want absolutely NOTHING to do with this type of market, because I'm convinced it's not operating in any way like it ever has before - and I no longer want to have anything to do with it.

20 years ago, I too, said that the market was broken. At least, it didn't strictly evaluate P/E ratios. The reality is, that mutual funds and ETFs have further allowed destabilization of the markets, further disconnecting each stock's value from the underlying company's performance.

IF everyone just invested $ regularly, and never panicked, or reacted irrationally to news, it would just go up, and up, and up. No more recessions. But that isn't the way the world works. The market is driven by fear and greed, high-frequency trading, computer algorithms, short sellers, and short sellers producing bad news to drop stock values. Since you can't accept this, it may be time for you to get out. I gave up long ago on fighthing the system. The only way to average 7% annual gains over the long term is to ingore the noise and invest.

In 2009, I had a doom-and-gloom coworker. He was convinced the markets were doomed and would never recover. He sold his equities at massive losses, making them permanent, bought annuities, and moved from high-cost of living Hawaii, to Texas. He was comfortable with his decision, and no longer had to worry about politics or the markets. Worked for him.

I hope you have a plan to keep up with inflation.

 

[Vincenzo Corleone]

And that chart is included in a FIRECalc run. And that reports that a 3.34% initial WR, inflation adjusted survived a 40 year retirement 100% of the time.

Apologies to the OP for sort of hijacking this thread. ERD, are you suggesting that if one has an initial WR of 3.34% or less and has a 40 year time horizon - only assuming that the future is like the past - he can feel confident he'll never fail? If so, it would seem to me that this 3.34% figure would be regarded by many to be the perpetual withdrawal rate. But I don't think there's consensus on the matter. The debate of a perpetual withdrawal rate rages.

 

[ERD50]

.... THIS IS NOT "INVESTING". Its' gambling. What color of the roulette wheel is your stock going to land on today? Red or black?

That's why I'm 100% convinced this market is broken. We have never seen anything quite like it, ...

Are you sure about that? Have you looked at history? Got a link for us? There have been volatile times in the past, likely far more than this.

There's always some day-day, week-week, month-month 'gambling', but in the long run, the markets add value. A casino does not do that. The market is not a zero-sum game.

.... and once we're back to Dow 26K (if we ever get there again in my lifetime), I'm selling every last share of stock and funds I own and going 100% cash the rest of my natural life. I want absolutely NOTHING to do with this type of market, because I'm convinced it's not operating in any way like it ever has before - and I no longer want to have anything to do with it.

If you feel that way, and some reading doesn't change your view, why not get out NOW, this minute? It's all doom and gloom with you, and honestly, we could see far worse for a long time. It's happened before and it can happen again. What are you going to do if we see another 10%, 20%, 30% drop?

Here's a graph that scares me - the buying power of a dollar. That's why I stay invested, for long term growth. Compare that to the market over the same time.

https://fred.stlouisfed.org/series/CUUR0000SA0R

-ERD50

 

[ERD50]

Apologies to the OP for sort of hijacking this thread. ERD, are you suggesting that if one has an initial WR of 3.34% or less and has a 40 year time horizon - only assuming that the future is like the past - he can feel confident he'll never fail? If so, it would seem to me that this 3.34% figure would be regarded by many to be the perpetual withdrawal rate. But I don't think there's consensus on the matter. The debate of a perpetual withdrawal rate rages.

I'm not suggesting it, the data shows it to be the case. Run it in FIRECalc yourself, like I did. Historically, it never failed.

40 years isn't perpetual of course, but as you increase the time frame it does level out. But go too far, and you start dropping off the 'bad years' like 1966. So you can test it to ~ 50 years.

OK, just did it. 50 years, 100% is a starting WR of 3.16%, inflation adjusted each year.

Yes, for the data we have. Future worst case could be worse, who knows?

-ERD50

 

[HadEnuff]

Because I'd lock in a heavy, six figure loss.

I'm going to sit on what will almost certainly be "dead money" until it comes back and live off after-tax cash & CDs. Once it IS back (if ever in my lifetime), I'm a heavy seller at that point.

When you say you'd lock in a heavy six figure loss, are you saying you bought all of your stocks when the Dow was at 26,000, or are you calculating your losses based upon your portfolio's highest value?

 

[USGrant1962]

That's why I'm 100% convinced this market is broken. We have never seen anything quite like it, and once we're back to Dow 26K (if we ever get there again in my lifetime), I'm selling every last share of stock and funds I own and going 100% cash the rest of my natural life. I want absolutely NOTHING to do with this type of market, because I'm convinced it's not operating in any way like it ever has before - and I no longer want to have anything to do with it.

What exactly makes you think the market is "broken"?

Volatility? The VIX index is a little higher than earlier in the year - it is currently around 23, which is simply normal-high based on history. It has spiked above 30 at least a half-dozen times in the last 20 years.

I was reading Dan Wiener's weekly Vanguard newsletter today and he pointed out that "While the pundits seem to be in freak-out mode over the stock market's moves, it turns out that we've been operating in one of the most narrowly ranged markets this year. If you look back at 90 years of history for the S&P and you consider the yearly low and yearly high for the stock market, the percentage through which the S&P has swung in 2018 is the seventh-lowest on record." He points out that we have not even seen a typical 14% decline from the high for the year.

I just calculated that we are about 11% off of the September peak, and you can add a quarterly dividend of 0.5% back to that for a "loss" of 10.5%. And total bond market is back up to flat since mid September.

Yawn.

 

[wmc1000]

THIS is the chart that concerns me, and should concern everyone in ER or even planning ER anytime soon.

Not sure about any of you, but we don't have 16 years - or 19 or 25 years - to get back to "even" as of 10/1/18. Yes, stocks do well in the long run..but there are periods of decades at time that they truly suck. I don't want to experience that type of scenario in ER.

Even 6 years to get back to "even" would not be good.

While this wouldn't be good for any of us it shows we must plan for long periods like these to occur. In our case, I project a "real" return of -2% per year as a worst case scenario and then we only have to touch our investments IF SS gets cut in 2034.



We had "cash" outside of our retirement accounts to bridge the gap until FRA SS.



LCOL keeps us out of any WR and since we don't have any pension income the possibility of a cut in SS is the only reason we will need a WR later in life.

 

[clifp]

For the life of me, I can't fathom why people were falling all over themselves to buy the same stocks at Dow 26.5K that they can't wait to sell at Dow 24.3K.

Take NOW. Yesterday, buyers couldn't get enough of it at 187. Now, they can't dump it fast enough at 180. In the meantime, NOTHING has changed about the company, it's revenue or profit outlook, etc. NOTHING.

THIS IS NOT "INVESTING". Its' gambling. What color of the roulette wheel is your stock going to land on today? Red or black?

That's why I'm 100% convinced this market is broken. We have never seen anything quite like it, and once we're back to Dow 26K (if we ever get there again in my lifetime), I'm selling every last share of stock and funds I own and going 100% cash the rest of my natural life. I want absolutely NOTHING to do with this type of market, because I'm convinced it's not operating in any way like it ever has before - and I no longer want to have anything to do with it.

Others have pointed out that the market isn't particularly volatile by historical. It is not close to being broken (now we approached a broken market during 2007).

Imagine your favorite bread is $4.99/loaf, one week it is on sale for $3.99 so you buy two loaves, and freeze one. The next week it is back to $4.99, but the week after it is buy one and get one free and on week 4 back to 4.99. Would you describe the bread market as broken or a casino? I suspect not. Yet on a percentage basis, the bread market is much more volatile. A 20% decrease in week 1, 25% increase in week 2, 50% decrease in week 3, and 100% increase in week 4. Nothing about the bread changed, size, ingredients, taste.

Historically, stock market investments (in the US) have done very well. There is no guarantee that will continue on the future, but I certainly wouldn't bet against it.

I realize that seeing a $100,000+ loss over a period of a few weeks is upsetting, maybe scary. But unless you just bought into the market this year, I'm quite confident that you are up a lot more than that over the last few years.

FWIW, I sold a lot of stocks this month, and will start putting the money into bonds and CDs. If bond yields go up, I'll sell more stocks and buy more bonds.

 

[ESRwannabe]

I know a lot of people, particularly bogleheads, do not like taking dividend income only, as a withdrawal strategy, but its the only strategy I've been completely comfortable with.

If people are uncomfortable with this small pull back then they might want to consider moving some of their equities to a fund like Vanguard's High Div Yield Index or Vanguard's Dividend Appreciation Index.

https://investor.vanguard.com/etf/profile/VYM

https://investor.vanguard.com/etf/profile/VIG

Another strategy that might be useful is an etf/cef that uses covered calls. You'll do better during a declining market (worse during an up market). I would suggest Horizons Nasdaq 100 Covered Call ETF.

https://horizonsetfsus.com/qyld-horizons-nasdaq-100-covered-call-etf/

An idea I have my eye on is an ETF that combines buying dividend aristocrats with opportunistically selling covered calls (CBOE Vest S&P 500 Dividend Aristocrats Target Income ETF). This ETF is just a few months old. So its on my watchlist.

https://www.cboevestetfs.com/#/

Another thing to note is all of these strategies are tax efficient. Covered Call etf/cef income is usually 50% or more ROC.

 

[ESRwannabe]

Another good option would be an ETF like (NTSX) WisdomTree 90/60 Balanced ETF.

It should perform like a 60/40 AA of S&P 500 and US treasury bonds times 1.5 for the return because it uses treasury futures for leverage.

This should give you a return higher than 100/0 stock/bond AA with a lower volatility.

https://www.wisdomtree.com/etfs/asset-allocation/ntsx

This is also tax efficient as the futures contracts get taxed at 60% qualified and 40% marginal rates.

 

[Chuckanut]

Here is one person's view of why we are seeing such volatility in the market:

https://humbledollar.com/2018/12/pu...xqOuHXilCt_SJ4EPvHb13am0g1EThs7Vold41ybYwYHR4

Basically, the author is critical of momentum funds that exaggerate any movements up or down. He admits he can’t quantify their total effect on the market.

“We’ve long seen this sort of momentum in stock prices. What’s changed? An increasing number of investment firms have launched funds to take advantage of this momentum effect. These momentum funds scour the market, looking for stocks that are displaying strong directional moves. When they find them, they effectively jump on the bandwagon, buying stocks that are going up and selling stocks that are going down. While it’s difficult to quantify, these momentum funds amplify the market’s ups and downs by bidding up stocks that are already going up and putting downward pressure on shares that are already headed lower.”

 

[JackJester]

Great advice as always! Yep, my plan is not as ‘solid' as I let on, but I think the jello is starting to jell. This Bear is real. Call it a hunch, intuition, or B.S. I'm a glass half full guy. The problem I have is with #3 of this plan:

1. Set your date
2. Select an allocation that you are comfortable with
3. Have 3 to 5 years of cash on the side to cover your fixed expenses.

Unfortunately, through the majority of my working years all I did was contribute to 40K and buy a house. House will be paid off next June 2019. I did not build up savings like I should have in hindsight. Then, when I got serious about achieving FIRE 5 years ago, I realized from this forum that I needed cash/after tax brokerage account so I could have bridge $ before 59.5. The challenge is building up that bridge $ ...since it is not just living expenses, it has to cover HC as well. My 401K is $1.5M, but my after tax/savings is only $60K. I fully understand my expenses (been tracking them closely for 5 years). Right now, firecalc says I’m 97% good to retire today. But, when I lay the full plan into Excel, I’ll have to use that 72T to live on in order to retire now. Somewhat stressful. And, if I adjust my 401K to a horrible -26% crash the day before my set retire date, then my firecalc results drop to 67% success. I know firecalc takes this into account, but still my brain can’t handle it. At this point, I feel I have no choice but OMY or 2MY to address step 3 further …and ease my mind. Go Seahawks! BTW - 'Da Bears' are no match for the Rams.

Jack

 

[pb4uski]

What you could do is to retire as planned and start retirement with an AA on the conservative end of what is tolerable to you and live off fixed income redemptions for the first 5 years... that will also grade your AA more towards the middle of what is tolerable to you and mitigate SORR.

So for example, let's say you are a 60/40 guy but anything between 40/60 and 70/30 would be tolerable. Start retirement with a 40/60 AA and for the first 5 years increase the stock percentage 4% each year when you rebalance.. so rebalance from 40/60 to 44/56, 48/52, 52/48, 56/44 to 60/40. What you are effectively doing is living off of fixed income those first 5 years and mitigating SORR.

I think you might be able to FIRECalc it by using a 60/40 AA and reducing your assets by 5 years of spending and defer your retirement for 5 years... where the conservatism in the AA is modeled as a side fund for the first 5 years.

 

[haha]

So is this one of those time that's is better to have a less money in the stock market. Or is it a great buying opportunity.

I'm in the former camp, but it interested in arguments who think this is just a blip in a bull market.

This is how I see it also. It is basically absurd to think that a market that has been on fire for almost 10 years could possibly be a buying opportunity. Well, that is wrong, every day that the exchange is open is a buying opportunity, just many periods are not good buying opportunities.

Ha

 

[MikeD]

What is SORR?

Thanks. I was hoping someone had 'axed' that!

Mike D.

 

[Christine]

That 'fake news' stuff is everywhere! Check your source data, always!

-ERD50

Thank you!

 

[revhappy]

For the life of me, I can't fathom why people were falling all over themselves to buy the same stocks at Dow 26.5K that they can't wait to sell at Dow 24.3K.

Take NOW. Yesterday, buyers couldn't get enough of it at 187. Now, they can't dump it fast enough at 180. In the meantime, NOTHING has changed about the company, it's revenue or profit outlook, etc. NOTHING.

THIS IS NOT "INVESTING". Its' gambling. What color of the roulette wheel is your stock going to land on today? Red or black?

That's why I'm 100% convinced this market is broken. We have never seen anything quite like it, and once we're back to Dow 26K (if we ever get there again in my lifetime), I'm selling every last share of stock and funds I own and going 100% cash the rest of my natural life. I want absolutely NOTHING to do with this type of market, because I'm convinced it's not operating in any way like it ever has before - and I no longer want to have anything to do with it.

I suggest, in times like this, stop watching your portfolio. Markets always over react both on the upside and on the downside.

Regarding, investing or gambling, the instruments are the same. But some people use it for gambling and some for investing. On a day to day basis it does indeed feel like gambling. Over the long term, it really depends on whether you bought at bubble prices or throwaway prices.

I am not going to say that I know prices will definitely go up in the long term. I don't know. But you should have a plan for every outcome. Including a fall of 50% from the current levels. Make sure your asset allocation is right such that you can tolerate a crash like that. Don't go blindly with 110-age. It is not for everyone. You must come up with your own ratio and looking at your risk tolerance, I think you shouldnt exceed 50:50 stocks: bonds. I am also 50:50 and I have decided not to exceed that no matter what people tell me about inflation. I will work harder and save more to beat inflation.

 

[njhowie]

Here is one person's view of why we are seeing such volatility in the market:

https://humbledollar.com/2018/12/pu...xqOuHXilCt_SJ4EPvHb13am0g1EThs7Vold41ybYwYHR4

Basically, the author is critical of momentum funds that exaggerate any movements up or down. He admits he can’t quantify their total effect on the market.

“We’ve long seen this sort of momentum in stock prices. What’s changed? An increasing number of investment firms have launched funds to take advantage of this momentum effect. These momentum funds scour the market, looking for stocks that are displaying strong directional moves. When they find them, they effectively jump on the bandwagon, buying stocks that are going up and selling stocks that are going down. While it’s difficult to quantify, these momentum funds amplify the market’s ups and downs by bidding up stocks that are already going up and putting downward pressure on shares that are already headed lower.”

This likely contributes to some extent. Other things also contribute to what is taking place. My view has always been that the same way the index funds were pushing the market higher as Vanguard had been the beneficiary of record inflows for a good while, the entire process works the same in reverse when there are net outflows.

1. Index funds see net outflows
2. Index funds sell their basket of stocks - with highest amount of selling in those names topping the S&P 500 (Apple, Amazon, Google, Facebook, JPM, XOM)
3. Index moves lower
4. More investors send redemption request to index fund

Lather, rinse, repeat.

https://www.marketwatch.com/story/blackrock-posts-first-net-outflow-in-three-years-2018-10-16

https://www.marketwatch.com/story/investors-flee-us-stock-funds-at-record-pace-lipper-2018-12-14

 

[OldShooter]

... THIS IS NOT "INVESTING". Its' gambling. What color of the roulette wheel is your stock going to land on today? Red or black? ...

@RetireSoon, I'm sorry you are so upset. One of the things I have been studying, reading Richard Thaler and Daniel Kahneman, over the past couple of years is behavioral economics. Maybe a few comments from that perspective will help.

... For the life of me, I can't fathom why people were falling all over themselves to buy the same stocks at Dow 26.5K that they can't wait to sell at Dow 24.3K.

Take NOW. Yesterday, buyers couldn't get enough of it at 187. Now, they can't dump it fast enough at 180. In the meantime, NOTHING has changed about the company, it's revenue or profit outlook, etc. NOTHING....

While over the long term the Efficient Market Hypothesis appears to govern (Richard Thaler agrees with this), over the short term pricing can be quite illogical. Here is a 42 minute video featuring Thaler and Eugene Fama, father of the EMH. (Both are Nobel prize winners.) I think you will enjoy it.

(Remember, too that the number of shares sold is always exactly the same as the number of shares bought.)

... That's why I'm 100% convinced this market is broken. We have never seen anything quite like it, ...

Well, I'm not sure who "we" is, but I've been in the market for over 45 years and this little kerfluffle doesn't seem all that unusual to me. We will have to wait five years or so to make a judgment about it, however. To the extent these things can be understood at all, they can be understood only in the rear view mirror.

One of the things the behavioral economists point out is that as humans our decision-making suffers from a "recency bias." IOW, we weight recent events more highly that events that are farther in the past. I think that's what is happening to you. Recently we have had an unusually low volatility period for the market, but looking over a longer period you can see that is not the norm. I have always thought this copilot checklist applied well to investing: Sit down, shut up, and hang on.

... and once we're back to Dow 26K (if we ever get there again in my lifetime), I'm selling every last share of stock and funds I own and going 100% cash the rest of my natural life. ...

That view seems kind of odd to me. Why not bail out now? Your plan probably has some flavor of what Thaler and Kahneman call the "endowment effect," where we humans tend consider the value of something we own to be more than what we would be willing to pay for it if we didn't own it. You can read a little about it on Wikipedia (https://en.wikipedia.org/wiki/Endowment_effect) but best would be to get Thaler's book "Misbehaving." Understanding that we humans tend to behave in this illogical way has helped me to make better investing decisions.

... I want absolutely NOTHING to do with this type of market, because I'm convinced it's not operating in any way like it ever has before - and I no longer want to have anything to do with it.

Well, as I said we differ on that. But the interesting thing about your post is that you actually do intend to remain in the market until it at least recovers to its recent high. I do too, and I'll remain longer than that. I think it's at least possible that you, too, will remain based the recency of the runup you are expecting. No way to know, however.

Be well. ... This, too, shall pass.

 

[Free bird]

Headline says evidence is mounting investor expect a stock market crash. We all know what that means. Get ready to buy with both hands. Get greedy. Blondies third year rally along with Mr Claus will get us to 3200-3400. When you can cut negativity with a knife its go time.

 

[Dtail]

Headline says evidence is mounting investor expect a stock market crash. We all know what that means. Get ready to buy with both hands. Get greedy. Blondies third year rally along with Mr Claus will get us to 3200-3400. When you can cut negativity with a knife its go time.

You are probably the biggest optimist on this site. Not a bad comment; actually refreshing....

 

[copyright1997reloaded]

For the life of me, I can't fathom why people were falling all over themselves to buy the same stocks at Dow 26.5K that they can't wait to sell at Dow 24.3K.

Take NOW. Yesterday, buyers couldn't get enough of it at 187. Now, they can't dump it fast enough at 180. In the meantime, NOTHING has changed about the company, it's revenue or profit outlook, etc. NOTHING.

THIS IS NOT "INVESTING". Its' gambling. What color of the roulette wheel is your stock going to land on today? Red or black?

Because human beings decision making process is imperfect, perhaps as a result of what was important for survival. In many ways, we are herd animals, and our decisions are biased based on what 'others' are doing.

That's why I'm 100% convinced this market is broken. We have never seen anything quite like it, and once we're back to Dow 26K (if we ever get there again in my lifetime), I'm selling every last share of stock and funds I own and going 100% cash the rest of my natural life. I want absolutely NOTHING to do with this type of market, because I'm convinced it's not operating in any way like it ever has before - and I no longer want to have anything to do with it.

There is nothing new here, and the market is no more 'broken' than it was many other times historically. What was the reason why the Dow 30 stocks at the end of October 19, 1987 were worth 22.6% less than the day before? Perhaps what is different is *you*, in terms of your reaction to it and the desire to get out of the 'game'?

Your statement "if we ever get there again in my lifetime), I'm selling every last share of stock and funds I own and going 100% cash the rest of my natural life" is exactly why markets are much more than just fundamental analysis, e.g. DCF valuations etc. You (and others thinking similar thoughts) will provide resistance around certain levels - regardless of the fundamentals, because of the human emotional desire to "get out" when an underwater investment goes positive.

Think about this - there are many out there who are thinking investment decision thoughts that have NOTHING to do with future earnings. Instead, they are seeing red ink and selling because they are afraid it will get worse and that they would rather get out (and stop the pain) than see even more loss. That is an emotional response, just like your desire to sell if you get to 26K.

 

[copyright1997reloaded]

This likely contributes to some extent. Other things also contribute to what is taking place. My view has always been that the same way the index funds were pushing the market higher as Vanguard had been the beneficiary of record inflows for a good while, the entire process works the same in reverse when there are net outflows.

1. Index funds see net outflows
2. Index funds sell their basket of stocks - with highest amount of selling in those names topping the S&P 500 (Apple, Amazon, Google, Facebook, JPM, XOM)
3. Index moves lower
4. More investors send redemption request to index fund

Lather, rinse, repeat.

https://www.marketwatch.com/story/blackrock-posts-first-net-outflow-in-three-years-2018-10-16

https://www.marketwatch.com/story/investors-flee-us-stock-funds-at-record-pace-lipper-2018-12-14

Yes, all the passive index investors (like most people on this site) are contributing to market volatility.

 

[njhowie]

Yes, all the passive index investors (like most people on this site) are contributing to market volatility.

If they are redeeming and contributing to the booking of net outflows by the funds, then indeed they are.

The linked articles clearly indicate that record net outflows are taking place, and this is a change from what has been taking place previously. It is certainly contributing to market volatility.

Believe whatever you like.

 

[copyright1997reloaded]

If they are redeeming and contributing to the booking of net outflows by the funds, then indeed they are.

The linked articles clearly indicate that record net outflows are taking place, and this is a change from what has been taking place previously. It is certainly contributing to market volatility.

Believe whatever you like.

Yes, I believe it. My rule: Anytime an investment 'theme' becomes pervasive, it will then fail to work.

Corollary: The herd is never right (once the herd becomes big enough).

Corollary: There are more losers than winners with any given investment approach.